Wells Fargo Upgrades Kate Spade (KATE) to Outperform
- Wall St. lower as earnings from some big names disappoint
- Unusual 11 Mid-Day Movers 10/25: (CWEI) (NXTD) (EYES) Higher; (DPRX) (CRBP) (CALA) Lower (more...)
- General Motors (GM) Tops Q3 EPS by 28c
- Procter & Gamble (PG) Tops Q1 EPS by 5c
- DuPont (DD) Tops Q3 EPS by 14c; Boosts FY16 EPS Outlook; Says Continuing to Work with Regulators
Get daily under-the-radar research with StreetInsider.com's Stealth Growth Insider Get your 2-Wk Free Trial here.
Wells Fargo upgraded Kate Spade (NYSE: KATE) from Market Perform to Outperform and raising their valuation to $23-$24 from $16-$18. The analyst said 2nd-half acceleration potential creates a compelling risk/reward profile.
Analyst Ike Boruchow commented, "· Following a tough Q2 print (where comps missed and FY guidance was cut), KATE shares have underperformed our group (-10% vs. group +2%) as investor skepticism has increased and the stock has been put into the “penalty box” (KATE also down 30% vs. group -4% since late April). We feel that this has created a compelling entry point, especially considering that several drivers of their Q2 miss were execution (transition to Cameron, miss in novelty), while our QTD checks imply a pick-up in trends (improved product reception, increased flash sales). Our view on the LT margin opportunity also remains intact (20%+ EBITDA margins still appears achievable via sourcing, licensing and scale). Fact is, KATE has seen some recent choppiness in fundamentals over the past few months; however, 1) the brand is healthy (they continue to outperform peers and gain share), 2) top-line continues to outperform (we see 9-10% comps in 2H as reasonable), 3) margins should continue to move higher (12.5% EBIT margins remains 6-8 points below accessory peers) and 4) we believe valuation is extremely compelling here (just 7.0x EV/EBITDA on 2017 numbers – including benefit of NPV of $739 million NOL balance). All in, we see renewed top-line momentum entering 2H (see comp acceleration), with upside optionality for holiday (begin to lap tourism/outlet headwinds and see lion’s share of sourcing benefits in Q4) with a stock trading at a very attractive multiple (a 30% discount to the group despite KATE’s 25% bottom-line growth profile) - creating a favorable risk/reward setup from here. We are raising our valuation to $23-$24 from $16-$18 based on an EV/EBITDA valuation of 9.0x 2017E EBITDA."
Shares of Kate Spade closed at $18.38 yesterday.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Fossil Group (FOSL): Successful Wearables Launch May Open The Door To Growth - Wells Fargo
- Swift Transportation (SWFT) PT Bumped to $24 at Stifel Following Solid Q3
- Visa (V) PT Raised to $97 at UBS on Solid Q4
Create E-mail Alert Related CategoriesAnalyst Comments, Analyst PT Change, Hot Upgrades, Upgrades
Related EntitiesWells Fargo, Ike Boruchow
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!